Capital gains tax hack: How one taxpayer avoided Rs 10 lakh in LTCG, but paid Rs 0; here's how

Gains from the sale of property in India are subject to capital gains tax, and the tax treatment depends on the holding period. If the property is sold within two years of purchase, the profit is classified as short-term capital gains (STCG). Such gains are taxed at the seller’s applicable income tax slab rates, and no indexation benefit is available.

However, when a property is sold after two years, the profit is treated as long-term capital gains (LTCG). Under current rules, LTCG on the sale of immovable property is taxed at 12.5%, without indexation benefits. Individual taxpayers and Hindu Undivided Families (HUFs) enjoy some relaxations under Section 54 and Section 54F, which allow exemptions if the gains are reinvested in residential property.

Case study: How Ramesh saved Rs 10.40 lakh in taxes

Tax advisory platform Tax Buddy shared a recent case of their client Ramesh, who sold his Hyderabad property in May 2024. The sale resulted in a long-term capital gain of Rs 50 lakh. Based on the 12.5% tax rate, his liability was Rs 10.40 lakh. Ramesh believed there was no way to save taxes since the financial year had ended, and he hadn’t reinvested the proceeds in a new house. However, with timely planning, his tax bill was reduced to zero.

The case

Filing due date: 15 September 2025

No new property purchased yet

Unsure where to reinvest gains

Facing a potential tax outgo of over Rs 10 lakh

The Solution: Capital Gains Account Scheme (CGAS)

Ramesh was advised to use the Capital Gains Account Scheme, a government-backed option for taxpayers who want to claim exemption under Section 54/54F but haven’t reinvested before filing their income tax return.

Here’s why it worked:

Section 54/54F allows exemption if capital gains are reinvested in a new house.

If reinvestment hasn’t happened by the filing deadline, depositing unutilised gains into CGAS is treated as reinvestment.

This locks in the exemption and provides more time to buy or construct a suitable property.

The outcome

Tax saved: Rs 10.40 lakh

Extended timeline: 2 years to buy a property, 3 years to construct one

Compliance secured: ITR filed on time, exemption preserved

Flexibility: No need to rush into a hasty or overpriced purchase

Why this matters to taxpayers

The case highlights how many taxpayers overlook the role of timing in tax planning. By simply parking gains in CGAS before the due date, you can defer your purchase decision and still protect your exemption.

For those selling property this year, 15 September 2025 is not just the ITR filing deadline—it’s also the cut-off to secure exemptions if you haven’t reinvested yet. Missing this date could mean a large, unnecessary tax bill.

Taxes on property 

Capital gains tax on property sales depends on the holding period. If sold within two years, it is treated as short-term and taxed at the individual’s slab rate. For long-term gains, properties acquired and sold before 23rd July 2024 attract 20% tax with indexation, while those acquired and sold after this date are taxed at 12.5% without indexation. If acquired before 23rd July 2024 and sold later, taxpayers can choose the more beneficial option—20% with indexation or 12.5% without. Losses can be set off accordingly and carried forward for eight years, provided the ITR is filed on time.